The Mid-Month Buy-Back Rule

If you keep a close eye on your covered call options, you might be presented with an opportunity to buy back the short call for a profit in the first 2 weeks and close out the position. If within the first two weeks of the month you are able to buy back the call and lock in an uncalled return of 4% for the month, then follow these rules as presented by Hooper and Zalewski in their book, Covered Calls and Leaps:

Five Rules for the Mid-Month Buy-Back

1. If you sold a call for a 5% uncalled return or more, than the mid-month may be considered.
2. If within the first two weeks of the month you are able to buy back the call and lock in an uncalled return of 4% for the month, then do so.
3. You then put in a good 'til cancelled (GTC) order to sell the same call for more than you bought it back for.
4. If the GTC order executes, wait until the end of the month to see if you will be called out.
5. If the GTC order does not execute or if the position is uncalled at expiration, move to the secondary call sales rules. (presented later.)

Good to Cancelled: an order to buy or sell a stock or option that remains in

effect until executed or cancelled by the investor.

It's important to remember that you should only consider the mid-month buy-back in the first two weeks of the month. Only buy back the call in the first two weeks of the month.

In our flowchart, provided by Hooper and Zalewski, the Mid-Month Buy-Back Rule falls beneath and to the left of the "Enter New Position" entry point in a decision box titled "Stock Decreases."